Magic of Mixed-Use:
Condos Drive Deals But Hotels Drive Condos
But a hotel brand can bring cachet
to a condominium project that positions it significantly
above its peers and differentiates it from its competitors.
Hotel brands can also vastly broaden the market and
target audience by appealing internationally to multihome
buyers who recognize and prefer the brand.
This provides a competitive advantage
and marketing edge that contributes to accelerated
sales absorption, most importantly, and greatly enhances
the value realized. Meanwhile, the recovery in the
market, shrinking cap rates and significant growth
in revenue per available room are allowing five-stars
to become justifiable on their own accord.
So condos drive deals, but hotels
drive condo deals.
As with the symbiotic relationship
of these two friends, a project can expand its circle
by bringing in other like-minded friends to its playground.
Enter the world-class spa, the celebrity-chef restaurant,
luxury-brand boutiques and so on, and what do you
have? A "lifestyle" development thoughtfully
executed for the consumer.
One could think of these mixed-use
developments as minimalls where the components collectively
become the draw that attracts the consumer. These
components not only bring convenience, but they bring
vitality, and together they create value. Most importantly,
the consumer will pay for it.
There are many benefits to a mixed-use
development for those involved. First, there is enhanced
development viability for both hotel and condo development
that could be too prohibitive individually.
Second, there is the ability to accelerate
development by fracturing up the density into more
manageable pieces if the gross buildable area is too
dense to absorb in a market for a single purpose use.
Last, there is the opportunity to
spread and/or reduce risk by having investment revenue
flow through multiple revenue streams. This creates
a nicely balanced ratio of variable to fixed/stable
cash flows (i.e. from fixed leases) as well as from
diversified market sectors like hotel, office and
Meanwhile, the economies created from
shared facilities and services add additional benefit
to mixed-use developments. These can include parking,
mechanical, management, concierge and valet. Add to
that the cross pollination of business between components
and you have a setting that benefits both business
owners and customers.
For example, the condo owner can order
room or housekeeping service on a pay-per-use basis,
while the hotel can realize added business from condo
owner's visiting guests or added dining revenue from
both, while the office caters its events from the
hotel, and the retailer has built-in business from
the hotel guests and residents.
points to consider
We always must consider the negative.
While there are many benefits for mixed-use developments,
they are not always the pertinent choice. Preselling
condos with escalating construction costs can dilute
profits. Some developer sales rescissions have happened
recently because costs exceeded gross sales revenues.
We also must consider the real-estate
cycle. If there is a downturn in the current cycle,
which there is bound to be, there will be increased
risk of default from the minus prime (high ratio debt
and resultant defaults) on lower-tier projects.
There also are many legal woes to
consider in mixed-use developments. Among the considerations
are titles, separate voting strata councils, allocation
of operating costs for shared facilities, separation
versus integration of services like lobbies, parking
garages, staff facilities, access and egress, ventilation,
separation or consolidation of strata plans, air spacing,
cross-easements for rights-of-ways, access, usage,
This may all sound like too much of
a headache to even consider, but done right, the gains
can be exponential and worthwhile. The caveat is,
however, as the old axiom goes, "it's all in
the details," and you can't stress this enough.
Conflicts need to be anticipated and
avoided to ensure success. Also, the more uses, more
creative the design, tighter the site, more people/partners
involved, the more the complexities. Having said this,
all the more exciting the project can be, the more
successful it can be, too.
When considering all factors-risk,
return and ultimately, the end experience-mixed-use
developments often can be brilliant. Few projects
are as exciting to do as are they for the consumer
to buy into. Done right, they can produce extraordinary
yields unlike any other opportunities in the marketplace,
but they require the savviest of developers capable
of delivering exactly the right bundle of goods.
Jim Mouzourakis is a founding principal
and the Managing Director for Canada at Paramount
Lodging Advisors in Vancouver, BC, www.paramountlodging.com.
Contact him at email@example.com
or call 604-761-2711.